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Is It Possible to Get a Loan Based on Income?

Is It Possible to Get a Loan Based on Income?
Sulaiman Abdur-Rahman
Sulaiman Abdur-RahmanUpdated March 1, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Getting a loan based on income is possible. Lenders may consider your debt-to-income ratio when deciding whether to approve or deny your loan application. DTI ratios help lenders evaluate your ability to shoulder new debt and make timely loan repayments.The risk of lending money is that a borrower may default on a loan. Lenders, therefore, may assess your income and personal assets before offering you a loan. Below we highlight how you can apply for a loan based on income.

What Are Loans Based on Income?

Loans based on income are financial lending products that require that borrowers meet minimum income requirements to qualify for funding. Personal loans, mortgage loans, and car loans are examples of loans based on income. Financial institutions can offer loans based on income in the form of open-end or closed-end credit.A steady income can make it possible for borrowers without credit histories to get a mortgage loan, car loan, or personal loan. Sources of income can include wages, salaries, pensions, Social Security, alimony, and child support.

Understanding Secured vs Unsecured Loans

Income-based loans can be secured with collateral or unsecured without pledging collateral. Car buyers can apply for secured or unsecured auto loans.Secured auto loans are secured by your vehicle, mortgage loans are secured by your home, and personal loans can be secured with an asset or unsecured with no assets.Consumers can compare secured and unsecured loans when looking for income-based personal loans. You may qualify for better terms if you pledge collateral on a personal loan, but lenders may seize your collateral if you default on the loan.Borrowers with bad credit or no credit can get an unsecured personal loan, but they may have to pay higher interest charges and fees. Lenders generally offer the best terms and conditions to borrowers with excellent credit.

What Is the Minimum Income Needed for a Personal Loan?

Borrowers may need at least $25,000 in annual income to qualify for a $2,000 personal loan. Lenders may set their own eligibility criteria for consumer lending products. Some lenders require borrowers to have a minimum annual income of $25,000 to qualify for a personal loan.Other eligibility criteria may require borrowers to be at least 18 and have proof of identity. Personal loans can help borrowers build a credit history, and they can also help borrowers meet their goals. Among the popular reasons to get a personal loan is debt consolidation.

How Can I Apply for a Loan Based on Income? 

You can apply for a loan based on income by submitting a loan application with a bank, credit union, or private lender requesting funding. Loan applications may require you to list your annual income, the source or sources of your income, and the reason you’re applying for a loan.Loan applications can be submitted online or in person with the lender of your choice. Lenders may require proof of income and proof of identity for verification purposes. Lenders may approve your loan application if you meet their minimum underwriting standards.

Income Verification

Lenders may require income verification procedures to confirm your eligibility for a loan based on income. For example, you may need to provide tax returns, recent pay stubs, or W2s to verify your annual income and sources of income.Recommended: Are New Employees Able to Get a Personal Loan?

Loan Amount

Personal loan applicants can request a specific loan amount. Borrowers, for example, may request small personal loans up to $5,000, whereas lenders may determine how much money they are willing to lend.Lenders may approve the $5,000 request, deny the request, or conditionally approve a lower loan amount. Borrowers with higher incomes may qualify for higher loan amounts.

Loan Term

Personal loans can have a repayment term of 12 months to seven years. Term length can impact the total cost of a loan. For example, longer terms may carry higher interest rates and lower monthly payments compared with shorter terms. Getting a longer loan term usually means you’ll pay more interest charges over the life of the loan.

Bank Account Information

Getting a consumer loan based on income may require that you have a personal bank account. You may need a U.S. depository account in your name, such as a checking account or savings account with a routing number. Lenders may require you to provide your bank account information for verification purposes.

Alternatives to Loans Based on Income 

Here are some alternatives to loans based on income:

Credit Cards

Credit cards are an alternative to loans based on income. Every credit card account has a predetermined credit limit capping how much you can charge on the card. It’s possible to get a credit card without a credit history, and you don’t necessarily need steady income to get a credit card in your name.Cardholders are expected to repay their credit card debts over time and can make monthly payments that meet or exceed the minimum payment due. You can generally avoid paying interest on credit card purchases by paying your statement balance in full each billing cycle.

Family Loans

Consumers may borrow money from family members. A family member may be willing to loan you a lump sum of money without charging you interest.Asking relatives for family loans can help you meet planned or unplanned expenses, but failing to repay them back in full could strain your relationship with them.

Personal Savings

Consumers with available personal savings may consider using those funds instead of borrowing from a lender. Any money you have deposited in a checking or savings account can be withdrawn and spent as you see fit.Using your personal savings to cover major expenses doesn’t impact your debt-to-income ratio and doesn’t require a hard pull inquiry into your credit report. Some savings accounts, however, may place limits on the number of withdrawals or transactions you can make during any monthly statement cycle.

The Takeaway

Many loan products require borrowers to have a gross monthly income. Lenders can set their own eligibility criteria, and some lenders may deny financing to borrowers with annual incomes below $25,000. Banks, credit unions, and nonbank financial institutions can offer loans based on income, but their terms and conditions may not always be right for you.Lantern by SoFi can help you compare personal loan interest rates. Just provide basic information about yourself and the loan you need, and Lantern can guide you in the process to apply for a personal loan with the lender of your choice. Check your rate today and see if you prequalify.

Frequently Asked Questions

Can you get a loan based on income?
How much will private lenders lend based on income?
How do I qualify for a low income loan?
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About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and served as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.
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